Much has been made of the volatility in job ad volumes throughout the pandemic, but the role of yield has been overlooked in SEEK’s long term strategy. There is plenty of growth and investment ahead for SEK’s international assets, but the core ANZ platform is by no means mature.
The core tenet of SEK’s strategy is that customers are willing to pay more for additional value. To achieve that goal, the company has spent several years investing in its platform and products to provide customers with a sophisticated tiered pricing model. The evidence has been quick to surface with growth in depth products now representing 35% of ANZ revenue in 1H22 at $133 million.
SEK has forthrightly expressed an ambition for ANZ and Asia revenue to double in 5 years implying approximately $1,370 million by FY26f. It will need a combination of volume and yield growth to achieve this.
The volume side of the equation is easily explained by the SEEK job volume index which has risen to record levels of 129 compared to the FY19 base of 100 (Figure 1). It got there via a big dip in the early stages of the pandemic then recovered strongly as the economy reopened and there was a substantial structural uplift in SME volumes. We think the index has run ahead of its longer term trajectory and we see it settling back towards 119.
SME volumes now account for 39% of SEEK job ads, up from 25% back in FY19.
Importantly, SEK’s competitive position remains very strong with daylight between it and the other job ad networks.
The yield part of the equation is where the magic is beginning to happen. Embedded in this growth is the ‘price to value’ strategy which has a number of aspects to it.
Firstly, over the last two years, SEK has been reducing discounts offered to recruiters and this has seen a decline in share of total volumes down to 24%. This has significantly lifted yield for SEK over that period but is now largely complete.
Next, the uptake of depth products under the new pricing structure has increased to 8%. Premium ad prices have been raised from $375- $395 to $425-$895 and this has effectively doubled premium ad revenue in 1H22.
Larger customers have been getting discounts for committed spend levels and higher volumes, but this will begin to unwind and will also support an improved yield.
SEK has now launched its new pricing structure in New Zealand which accounts for about 10% of volume and revenue.
SEK has been treading softly on the price to value strategy while it is still learning about price elasticity of different roles.
In addition, while volume growth is still quite chunky, SEK has no urgency to push hard on yield initiatives. There is also some sensitivity being applied to help employers who have endured a rough time through the pandemic in terms of labour supply.
Investment view
As conditions normalise, we expect the price to value strategy will become more prominent in the revenue equation. We think there is plenty of scope to drive yield higher given the substantial improvement in value (products and platform) being offered to employers and hirers.
By improving its search and matching capabilities, SEK is increasing the efficiency of the hiring process and saving money for hirers. With add-on services such as police/background checking, qualification checking and basic proficiency testing, the process is further supported.
SEEK Asia is a work in progress but is making a positive contribution. SEK’s platform unification project ($125 million over 3 years) will lift the performance of this segment in time, but we remain cautious on the current outlook.
Risks to investment view
If economic growth stalled or turned negative, this could be detrimental to employment markets and job advertising. Competition could take market share if better products and service were offered compared to SEK.
Recommendation
We have retained our Buy recommendation.
